PL Global Impex

Is Commodity Trading Better Than Stock Trading

INTRODUCTION

 

In today’s time Indian investors have an extensive range of investment options. From stocks to agricultural products to oil and gold, the investors can expand their investments across classes of assets. While commodity trading is gaining popularity, it is important for investors to understand which is the most profitable and favorable investment option for them – Stock Market or Commodity Market. In this article, we will come to know the differences between the stock market and the commodity market on some of the basis. So that investors can make their decisions about investing.

 

What Is The Stock Market?

 

A Stock market is a place where the listed companies trade their stocks. A stock or share is a financial instrument that displays the ownership of an individual in a company.  Just like the owner, even the stockholder has the right to voting and getting a share in profits along with the capital appreciation.

 

What Is The Commodity Market?

 

A commodity market is a place where transaction of commodities take place (bought and sold). The term commodity is called the basic resources or goods and services that are traded in the commodity market. 

Commodities are of two types:

 

  1. Physical commodities such as gold or silver.
  2. Soft commodities like agricultural products and livestock.
 

HERE ARE THE BASIS ON WHICH THE INVESTORS CAN CHOOSE BETWEEN STOCK MARKET OR COMMODITY MARKET (WHICH IS BETTER):

 

 Ownership

 
  • Stock Market: An investor gains ownership of the stock only after buying the stocks in the stock market. The coffee- can investing is the most popular long term strategy of stock market investing. 
  • Commodity Market: In commodity markets, the most common type of trading is done through the futures contracts. With the futures contracts, there is no ownership interchanging hands between people. Instead, these contracts deal with the future deliveries of the commodities that they trade but hardly ever owned.
 

Volatility

 
  • Stock Market: The equity market is relatively less volatile as the stocks have a price range and little spreads, also they are highly liquid. The investors in the stock market take calculated risk and gain all the important rewards.
  • Commodity Market: Commodities tend to be the most volatile out of all the assets classes and financial markets. This is because the commodity market is known for having lesser liquidity compared to the stock market. Hence it affects the dynamic external factors such as geopolitical tensions, demand and supply of the commodities etc.
 
Is Commodity Trading Better Than Stock Trading_

Time Horizon

 
  • Stock Market: The stock market investors have an option to hold their shares for a long period of time, which is popularly indicates as coffee can investing strategy. Investors can hold their stocks for a short period of time in the stock market. Rather, investors can hold stocks that can be held over decades, converting them to an ideal long-term investment.
  • Commodity Market: On commodity trading the time horizon is very different. The commodity market generally trades in contracts which are short-term. Also, they come with a time limit or expiry unlike stock market, which means they must trade within the given time period. Hence, the commodity market is known as the ideal for short-term investment.
 

Risk

 
  • Stock Market: Trading in the stock market can be risky because your investment is susceptible to market volatility. Also, many investors avoid taking the risks in the stock market because there are more than 5000+ stocks to trade in it. Hence, it is a comparatively tough choice for investors to select the right share.
  • Commodity Market: Commodities bring higher risk than the Stock Market. The main reason is that they trade on futures markets as well, that offer a high degree of strength and come with a conclusion. A commodity trader generally has to put up a minimum percentage of the contract value in futures.
 

Trading hours

 
  • Stock Market:  Stock exchanges work for shorter hours compared to commodity exchanges.
  • Commodity Market: Commodity exchanges are open for longer hours as compared to the stock market.
 

Conclusion:

 

These differences between commodity markets and stock markets will help the investors determine where to invest (stocks or commodities) keeping your financial goals in mind. Investing in commodities is good for those who are looking for short term investments and want to make profits in a volatile market. However, Investing in the stock market is ideal for those who are looking for long term investment.

For more references, PL Global Impex Ltd. is here to help you out.

Contact Us